Over the next few months, Americans will be hearing a lot about STLDs, which are being touted as a free-market alternative to the Affordable Care Act. Short-term limited duration insurance plans have been around for years, but what’s new about STLDs is that, under a final rule published August 3 in the Federal Register, the definitions of “short-term” and “limited duration” have been dramatically altered.
The Trump administration’s new rule will allow state insurance commissioners to expand the use of STLDs for people during a lapse in coverage. The final rule re-defines “short-term” from the current three-month limit to 364 days; duration extends to just days shy of three years, as the plans can be renewed twice. The rule goes into effect October 2.
The Trump administration’s plan returns power to the states, which is a good thing. Members of the National Association of Insurance Commissioners appear to be moving into high gear in response to the new rule. Earlier commentary from NAIC had requested that the rule allow states until 2020 “to facilitate a smooth transition.”
There’s no time for that now. The New York Times reported that while state regulators from the NAIC met in Boston recently, two Republican governors have already issued rules to limit the short-term plans.
STLDs are not the same as other insurance plans. Paul Spitalnic, chief actuary of Centers for Medicare & Medicaid Services explains: “STLD plans are not considered individual market insurance policies, and therefore they are exempt from the statutory coverage requirements of the individual market. Moreover, they do not need to meet the essential health benefits requirements or the actuarial value requirements, they can be medically underwritten, and they are not eligible for federal subsidies in the Health Insurance Marketplace. As a result, insurance companies would be able to offer these policies to individuals who are in good health at a substantially lower premium than available in the individual market.”
Indeed, healthy people are flocking to STLD plans. And why wouldn’t they? Average premiums on the federal exchange more than doubled from 2013 to 2017. Once the individual mandate penalty drops to zero next year, we can expect the use of STLD plans to skyrocket.
The cost to purchase these plans will be lower, yes, but the requirements of STLDs are not the same as for other policies. This is not a factor of a free market. It was Obamacare that “exempted short-term policies from market rules” like excluding pre-existing conditions and requiring minimum coverage.
STLDs simply aren’t held to the same standards as other types of policies. STLDs:
(a) can turn down applicants based on health conditions, gender or age; (b) are not required to cover “essential benefits” like prescription drugs, maternity care and mental health care; (c) and can retroactively cancel policies.
Medicare’s chief actuary estimates that 1.4 million people could sign up for STLD plans in 2019, with enrollment reaching 1.9 million by 2022. He estimates that the new plan could cost the government $1.2 billion next year and a total of $38.7 billion over 10 years.
As long as some health care policies are required to meet ACA requirements, there is no “free market” in America’s health care system.
I am certainly not advocating against sensible requirements, including essential health benefits. What we will have come October of this year is a mix of ACA-compliant policies and free-wheeling STLDs. As I reviewed some of the comments submitted in response to a then-proposed rule, I was struck by this passage from the American Academy of Family Physicians:
All commercial and private health insurance plans should adhere to the ACA’s essential health benefits requirements to prevent insurance discrimination against any individual based on their health status, age or gender.
This precept appeared again and again in commentaries on what was then a proposed rule, and is now the law of the land: we can’t have it both ways. As long as the ACA remains in place, the expectation is that all the players will abide by its rules.
To create a truly free market in health care would require the type of level playing field that cannot exist concurrently with Obamacare. Dismantling Obamacare piece by piece appears to be futile and costly — both in taxpayer dollars, which we can measure, and in human suffering, which is difficult to tally and impossible to recompense.
